Authored by Archit Gupta

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CBDT introduced a new Section 112A with 10 percent tax on LTCG in excess of Rs 1 lakh on sale of listed equity shares, units of equity-oriented mutual funds and units of business trust which are subject to STT at the time of sale. The securities should be long-term capital assets having more than 1 year of holding.

Till FY 2017-18 Long Term Capital Gain on equity shares and equity-linked units of mutual funds and business stood exempted u/s 10 (38).

Upon withdrawal of tax-exemption, budget 2018 introduced a grandfathering clause to exempt gains until January 31, 2018. Therefore, the cost of acquisition of the securities is required to be calculated as per a specified formula to ensure investments made before February 1, 2018, remain tax-exempt.

For calculating Cost Of Acquisition, firstly we take a value which is the lower of the fair market value as of January 31, 2018, and the actual selling price. This value is then to be compared with the actual purchase price, and higher of these two as the cost of acquisition.

Let us understand by way of an example:

Mr Udit made a lump-sum investment of Rs. 20 lakh in shares of a listed company in June 2005. Its market value on January 31, 2018, was Rs. 40 lakh. Udit redeems his entire investment in May 2019 for Rs.43 lakh netting a gain of Rs. 23 lakh. However, due to the grandfathering clause, Udit’s taxable gain would be only Rs. 3 lakh.

Udit had made another investment of Rs. 15 lakh in shares of another listed company in February 2016. The fair market value of the investment on January 31, 2018, was Rs. 4 lakh, and he ultimately sold all these shares in June 2019 for a sum of Rs. 10 lakhs. In this transaction, Udit incurred a loss of Rs. 5 lakh calculated for tax purposes as per the grandfathering clause.

The long-term capital gains tax under section 112A of 10 percent is only on the gains above Rs 1 lakh. In our example, Mr Udit incurs a long-term capital loss of Rs 2 lakh which he can carry forward for eight succeeding assessment years.

Also, the tax is on the net annual long-term capital gain. For example, suppose a taxpayer has annual (net) long-term capital gain under section 112A of Rs 1.5 Lac. In that case, the tax of 10 percent under section 112A is on Rs 50,000 (Rs 1.5 lakh – Rs 1.00 lakh), the taxpayer should input Rs 1.5 lacs and the software will automatically calculate the LTCG of 10 percent on Rs 50,000.

In filing the income tax returns for the AY 2020-21, in case of shares or units bought on or before 31 January 2018, a taxpayer should provide a scrip-wise reporting of long-term capital gains in Schedule 112A. The data should provide the ISIN code, name of the scrip, the number of units or shares sold, sale price, purchase cost and FMV as of January 31, 2018. The details are necessary to arrive at the correct amount of long-term capital gains where the grandfathering provisions are applicable.

In a recent press release, CBDT clarified that scrip-wise details are not necessary for reporting long-term capital gains from investments after 31 January 2018. The taxpayer can report consolidated figures of the purchase price, sale price and expenses on transfer.

ClearTax’s e-filing software helps in uploading capital gains data in ITR directly from the realized gain statements obtained from your stockbroking agency. ClearTax’s e-filing software supports auto capturing of the ISIN code along with the data on the capital gains transaction enabling a correct calculation of tax dues.

Archit Gupta is Founder and CEO, ClearTax

First Published:Nov 10, 2020 3:50 PM IST